NZD/USD juggles near 0.6000 as US Dollar steadies after investors price weak US data

• NZD/USD trades sideways around 0.6000 as the US Dollar steadies after recovery.
• The speculation for the Fed lowering key interest rates from September strengthens after weak US NFP data.
• Weak NZ labor market data boosts expectations of early rate cuts by the RBNZ.

The NZD/USD pair trades lacklustre near the psychological level of 0.6000 in Tuesday’s European session. The Kiwi asset consolidates as the US Dollar turns sideways above 105.00. The US Dollar Index (DXY) rebounds sharply after correcting to near 104.60 as investors discount the Federal Reserve’s (Fed) slightly less hawkish commentary on the interest rate outlook than feared and weak labor market data for April.

The Fed said that more interest rate hikes are unlikely, and it still sees rate cuts later this year, though its confidence has been impacted due to stubborn price pressures in the first quarter of the year. This has deepened expectations for the Fed reducing interest rates from the September meeting.

Apart from that, weak labor demand and a higher Unemployment Rate have also strengthened speculation that the Fed will pivot to interest rates in September. The CME FedWatch tool shows that traders see a 67% chance for a decline in interest rates from their current levels in September, which is significantly higher than the 46% chance recorded a week ago.

Meanwhile, the upside in the New Zealand Dollar has stalled as investors see the Reserve Bank of New Zealand (RBNZ) pivoting to interest rate cuts from the October meeting. Earlier, investors forecasted that the RBNZ would choose 2025 as their initial point to begin reducing interest rates due to stubborn Q1 inflation data. However, weak Q1 labor market data has increased expectations that the RBNZ will start lowering interest rates earlier.